March 22, 2016

On Tuesday, the S&P 500 ended the day down 0.1% while Toronto was down 0.5%.

Rate reset preferred shares have risen as the government of Canada five year bond yield has risen moderately in the past month.

TransForce closed down 1.6% to $21.99. It has offered to buy back a large amount of shares in a “dutch auction” at a price between $19 and $22 depending on how share owners respond to the offer. The offer is only open until Monday next week and my broker indicates that instructions must be given by noon on Thursday. It’s hard to imagine that anyone would tender at a price less than $22 or that many shares at all will be tendered. Possibly there are some big owners who could tender and get out without worrying that selling a large amount of shares would push the price down. But TransForce traded over $30 this time last year, and its earnings have increased, so why sell at $22 now? The whole dutch auction thing is strange because it may have pushed the price up. The shares were closer to $19 and $20 when this auction was announced. Sounds like something dreamed up by an Investment bank to make some fees on. It would likely have been better to just buy as many shares as they could on the open market. What if there were a major market decline due say a terrorist attack? Then TransForce would have been stuck buying back shares at an above-market price.

This share buyback was announced back on February 11, when the shares closed at $19.61. This sort of thing would make a lot more sense if it could be done in closer to seven days as opposed to seven weeks. Apparently TransForce has the ability to vary the offer such as by increasing the price. If they do that then perhaps this whole thing will start to make more sense. At the moment, I see no winner here except the investment banks that dreamed this up and will presumably collect fees regardless of the outcome.